Idea of the Week: Deere bonds – farming the satellite economy via SpaceX connectivity

Data as of 3 May 2026
Source: Company data, Bloomberg, iFAST Compilations.

Chart 2: Operating margins over the past 5 years

Data as of 3 May 2026
Source: Company data, Bloomberg, iFAST Compilations. 

A satellite-enabled moat underpins through-cycle earnings

A satellite-enabled precision agriculture ecosystem underpins Deere’s through-cycle earnings resilience. Over two decades, Deere has built a connected platform spanning ~500 million engaged acres, with ~30% currently highly connected and a target of ~50% by 2030. This digital layer enhances pricing power and service stickiness, helping stabilise margins even during cyclical downturns. In FY2025, despite ~30% lower North American large agriculture shipments, Deere still delivered +1% price realisation across Production & Precision Agriculture and Small Agriculture & Turf, with segment margins remaining resilient at ~15% in Production & Precision Agriculture and ~13% on a multi-year basis.

Connectivity is being further strengthened through Deere’s partnership with SpaceX, leveraging Starlink to expand rural broadband access via JDLink Boost and improve machine-to-cloud integration, although software and subscription revenues remain immaterial today. Looking ahead, Deere targets software and services reaching ~10% of revenue (~US$5b) by 2030. Fundamentally, Deere remains a heavy industrials company today, making the SpaceX partnership a medium-term structural evolution rather than an immediate financial catalyst. Over the medium-term, however, this steady transition toward high-margin, recurring service revenues should enhance earnings visibility and soften the inherent cyclicality of the core equipment business.

A fortress industrial balance sheet behind a large finance book

One thing to note about Deere’s credit profile is that it is really two balance sheets in one, and we think they must be read separately. On a consolidated (whole-group) basis, gross debt stood at about US$63.8b as of 3 May 2026, against US$9.3b of cash and short-term investments, yielding a net debt of roughly US$54.5b. Leverage has been trending downward (see Table 1 below), with a current net debt-to-equity ratio of around 2.0x. However, a great majority of that debt, some US$54.6b, sits within the finance arm, where it is deliberately match-funded against an interest-earning portfolio of roughly US$56b (US$49.0b of net financing receivables and US$7b of equipment on operating lease). TTM interest coverage (EBIT / gross interest expense) stands at 3.1x on this blended basis, which, in our view, does not accurately reflect the credit strength of Deere’s industrial business.

 
On the industrial (equipment operations) basis (see Table 1 below), leverage is more conservative, with the equipment business carrying about US$9.3b of debt against US$6.1b of cash and short-term investments, yielding a net debt/equity ratio of just 0.15x. Its TTM interest coverage (EBIT / gross interest expense) is healthy at 14.7x.

 
For the finance arm, as seen in Table 1, asset quality has softened modestly through the agricultural downturn, but the pace of deterioration is easing. As of end-2Q FY2026, non-performing receivables (loans on which Deere has stopped accruing income, generally 90+ days past due) rose to 1.51% of the US$49.0b financing portfolio, up from 1.23% at FY2025 year-end, reflecting continued pressure in agricultural and construction retail accounts. The allowance for credit losses (the balance-sheet reserve for expected losses) increased modestly to US$267m, or ~0.54% of receivables, from US$258m / 0.50% at FY2025 — a measured reserve build, to account for worsening non-performing receivables, not a sharp step-up. Provisioning trends support the stabilisation view: the 1H FY2026 provision for credit losses fell to US$127m from US$174m in the prior-year period, and net write-offs remained contained at approximately US$118m in the first half, equivalent to less than 0.25% of average receivables. Overall, asset quality metrics are weaker than a year ago, but the rate of deterioration is moderating — the key watch item for subsequent quarters.

Group liquidity is healthy (end-2QFY2026), with Deere holding US$9.3b of cash and marketable securities, supplemented by some US$5.9b of undrawn committed credit lines, yielding a total available liquidity of US$15.2b that comfortably backstops near-term needs and its commercial paper. As seen in Chart 3 below, both operating and free cash flow generation have been positive and solid over the past five years, even through this downturn in the agricultural cycle, which further strengthens Deere’s liquidity profile. Looking at chart 4 below, the near-term maturity wall (US$38b due 2026–2030) is almost entirely JDCC rolling its finance receivables book in the ordinary course — not a parent refinancing event. The parent bonds appear only as a small sliver before 2031, with the long-dated issues (2035–2055) facing essentially no near-term pressure. The watch item is the US$21.6b of rolling short-term borrowings, which depends on sustained market access and is backstopped by committed credit facilities.

Table 1: Leverage and coverage metrics 

FCF = Net OCF + Proceeds from sales of equipment on operating leases – Capex (Purchase of PPE + Cost of equipment on operating leases acquired)
Data as of 3 May 2026
Source: Company data, Bloomberg, iFAST Compilations.

Chart 4: Debt maturity profile 

Data as of 3 May 2026
Source: Company data, Bloomberg, iFAST Compilations. 

In sum, we think Deere has a solid investment-grade credit profile, being rated A (S&P), A1 (Moody’s), and A+ (Fitch). The group’s diversified business mix has supported positive earnings and cash generation across the cycle. Looking ahead, we believe the increasing integration of its precision agriculture ecosystem, including SpaceX-enabled connectivity, should further enhance the quality and visibility of the group’s earnings. Combined with an anticipated recovery in the agricultural cycle from FY2027 onwards, we see scope for a modest improvement in Deere’s credit profile over time.

  
In Table 2 above, we highlight Deere’s outstanding USD bonds on offer. Note that these bonds are the obligations of the group, not the direct paper linked to JDCC. In general, these issues offer yields-to-worst ranging from 4.36% to 5.53%, carrying intermediate to long-term tenors. Against comparable US treasuries, these bonds offer a decent yield spread of 40-70+bps. As seen in the Bloomberg chart below (Deere’s bond curve is denoted in blue), we find these Deere bonds to be fairly priced.

 
Investors seeking quality income from a stable issuer whose business prospects are increasingly defined by the burgeoning field of space can consider these Deere bonds. That said, we emphasise the duration risk embedded in its longer tenor bonds (16+y to 28y), which could face steep price declines if interest rates rise further.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds NIL positions. The analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.